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The Lighthouse is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

Volume 16, Issue 13: April 1, 2014

  1. Obamacare’s Failing Grade
  2. The Coming U.S. Government Default?
  3. Ron Paul versus Dianne Feinstein
  4. Private Prisons and Crony Capitalism
  5. New Blog Posts
  6. Selected News Alerts


Priceless Banner


1) Obamacare’s Failing Grade

Four years after passage of the Patient Protection and Affordable Care Act, it’s clear that the president’s signature legislation has been a costly failure. So argues Independent Institute Senior Fellow John C. Goodman in the Wall Street Journal. Although press coverage about its problems has focused on the challenge of enrolling online, other problems will be more persistent. Here are three: The mandates mean that households will have a harder and harder time dealing with rising healthcare costs. The arbitrary and unfair subsidies will increasingly distort the economy. And the perverse incentives in the exchanges will create a race to the bottom in access and quality of care.

What’s the remedy? “Getting rid of the mandates, letting people choose their own insurance benefits, and giving everyone the same universal tax credit for health insurance would be a good start,” Goodman writes. “More easily accessible health savings accounts for people in high-deductible plans is another good idea.”

Goodman also urges policymakers to junk every provision in the healthcare law that discourages employers from hiring more workers and that encourages them to cut employees’ hours. “Everything in the law that prevents employers from providing individually owned health insurance that travels from job to job should go,” Goodman continues. “And everything that makes HealthCare.gov more complicated than eHealth (a 10-year-old private online exchange) should go.”

A Costly Failed Experiment, by John C. Goodman (The Wall Street Journal, 3/21/14)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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2) The Coming U.S. Government Default?

Social Security, Medicare, and the federal component of Medicaid are easily the leading sources of the government’s worsening fiscal nightmare. By 2037, the ongoing growth in spending for these programs will have pushed up total federal spending to 35.7 percent of GDP, according to the Congressional Budget Office. But federal tax revenues can’t keep pace; it’s practically an “iron law” of our political culture, argue economists David R. Henderson and Jeffrey Rogers Hummel. In fact, you can count on one finger the number of years since 1950 that the U.S. government has taken in more than 20 percent of GDP. Therefore, unless federal spending on “entitlements” and transfer payments slows down in the coming decades, the government will face the prospect of defaulting on the federal debt.

“The default could range from outright repudiation to partial repudiation,” Henderson and Hummel write in the Spring 2014 issue of The Independent Review. The worsening financial health of Medicare Part A and Social Security could trigger default, they explain. Recent trustees’ reports say those programs’ trust funds are on target to become insolvent in 2026 and 2033, respectively. Were that to occur, the programs would rely on general revenues. But if investors believe the added burden would prevent the Treasury Department from meeting its debt obligations, then the price of treasuries would plummet, interest rates would soar, and the federal government would find itself in the midst of a severe financial crisis.

Although the bond market currently shows no sign of such worries, Henderson and Hummel note that investors’ perceptions of financial security can change quickly. Just ask Greece. And if the federal government were forced to default, its credit rating and ability to borrow would be harmed for years. Under those circumstances, the authors conclude, many fiscal conservatives would finally have something they can now only dream about: a de facto balanced-budget amendment with teeth.

The Inevitability of a U.S. Government Default, by David R. Henderson and Jeffrey Rogers Hummel (The Independent Review, Spring 2014)

The Independent Review: Special offer of your choice of a FREE book when you renew or order a new subscription online.

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3) Ron Paul versus Dianne Feinstein

Sen. Dianne Feinstein’s charge that the CIA has been spying on the Senate Intelligence Committee has more than a trace of hypocrisy about it: It’s undiluted, 200-proof double-dealing. The senator has been one of Congress’s biggest backers of the federal government’s electronic surveillance of ordinary Americans, but she is filled with righteous indignation because, she claims, the CIA is monitoring her committee’s computers. (Incidentally, those are computers the CIA provided the committee so it could “securely” study the agency’s internal reports on its torture of detainees at secret prisons overseas; the spymasters apparently bungled by including some documents they meant to keep secret.)

If Feinstein were to reverse her stance on government surveillance and transparency—which is unlikely, given that her proposed “reforms” would simply codify the NSA’s privacy violations—she would need to make some big apologies. “When CIA whistle-blower John Kiriakou exposed the CIA’s role in torturing prisoners, he was sent to prison for nearly three years,” former Congressman Ron Paul writes in the San Francisco Chronicle. “Feinstein and her colleagues didn’t lift a finger to support him.” Watch for Dr. Paul to expand on this topic in his upcoming talk about “the future of freedom” on April 9 in Hayward, Calif.

In a recent op-ed for the Huffington Post, Independent Institute Senior Fellow Ivan Eland argues that the government’s electronic surveillance of ordinary citizens, without probable cause, is in breach of the Fourth Amendment. And its programs of torture, detention without judicial review, and arbitrary killings violated a treaty, ratified in 1992, which is still binding. These violations, according to Eland, show that “the security state is slowly replacing the founders’ vision of the republic.”

Congress Believes: Spy on Three, but Not Me, by Ron Paul (San Francisco Chronicle, 3/27/24)

U.S. Security Agencies Are Out of Control, by Ivan Eland (3/19/14)

Ron Paul to Discuss the Future of Freedom (Hayward, CA—4/9/14)

  • Admission: Free and open to the public! Tickets required, first come first served.

  • Private reception and Book signing: $75/person (includes one copy of either Liberty Defined by Dr. Paul or other book by him)

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4) Private Prisons and Crony Capitalism

With an estimated 2.3 million people behind bars, the United States is the world leader in the number of prison inmates. In 1986, it had only 300,000 prisoners. What accounts for this rise? The drug war is one pillar. Another is the for-profit prison lobby, as Independent Institute Research Fellow Wendy McElroy explains in a revealing article for The Freeman.

The number of for-profit prisons rose 1600 percent from 1990 to 2010, according to McElroy. Their rise is attributable in part to the cost savings they can deliver compared to government-run prisons. But for-profit prisons can have a pernicious effect. They have strong incentives to promote incarceration over alternative ways to deal with convicted lawbreakers and to promote the criminalization of victimless crimes. These incentives, along with the prisons’ reliance on government coercion, should make advocates of free markets skeptical of today’s for-profit prison industry; at the very minimum, they should take care to distinguish between the correctional system they envision and our current one. “The ‘private’ prison industry,” McElroy writes, “is private in the same sense that crony capitalism is capitalist. Namely, not at all. It is the antithesis of a truly private industry that competes in the free market, does not accept tax funds, and cannot compel labor.”

Cheap prison labor is one feature of for-profit prisons that can create the perverse incentives: companies that utilize well-managed labor of for-profit prisons can outcompete their free-market competitors, as McElroy indicates happened in Texas when a tractor-trailer company that used prison-made parts put its rival out of business. In addition, various “public” elements of the criminal-justice system have also benefited unjustly from for-profit prisons. In some jurisdictions, sheriffs lose funding—and constituents lose jobs—if the inmate population drops below the “occupancy guarantee” specified in a contract with a for-profit prison. Opportunities for graft abound. In Pennsylvania’s “kids for cash” scandal in 2008, two judges were convicted for locking up 2,000 children in a for-profit facility for “crimes” as trivial as mocking a school principal on Facebook. The judges’ take: $2.6 million.

Cage Complex: Why Is America’s Prison Population Soaring?, by Wendy McElroy (The Freeman, 1/21/14)

To Serve and Protect: Privatization and Community in Criminal Justice, by Bruce L. Benson

Changing the Guard: Private Prisons and the Control of Crime, edited by Alexander T. Tabarrok

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

FDA Delays Burn Americans
K. Lloyd Billingsley (3/31/14)

The Federal Government: It’s a Lock
K. Lloyd Billingsley (3/26/14)

Broken Trust
Craig Eyermann (3/25/14)

You can find the Independent Institute’s Spanish-language website here and blog here.

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6) Selected News Alerts

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